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2017 DIGILAW 1419 (KER)

Raghavan v. Southern Railway

2017-11-16

SHAJI P.CHALY

body2017
ORDER : The applicant and the opposite parties have entered into Annexure-A3 agreement, whereby certain works contracts were executed by the applicant. As per Annexure-A8 General Conditions of Contract, it is agreed by and between the parties as per Clause 64(l)(i) that, in the event of any dispute arising by and between the parties, the dispute shall be resolved by resorting to the alternative disputes resolution mechanism provided thereunder. 2. Disputes arose by and between the parties, consequent to which, Annexure-A8 demand is made by the applicant seeking to appoint the arbitrator. Thereupon, Annexure-A9 was issued by the 1st opposite party, formulating the terms of reference and referred the matter to the Arbitral Tribunal consisting of three members. The Tribunal entered into reference and issued a notice, constituting the Arbitral conference on 21.09.2016, on which date, the matter was posted to 14.08.2017 and adjourned to 09.09.2017. However, Annexure-A10 letter is issued by the 4th respondent based on the amendment of the Arbitration and Conciliation Act, 1996 on and with effect from 23.10.2015, the letter read thus: "In connection with the letter cited under reference copy of the Railway Board's letter which is self explanatory is enclosed. You are requested to communicate the consent to switch over the existing ongoing Arbitration cases to the Arbitration and Conciliation (Amendment) Act, 2015. The claimant contractor are requested to give their consent within the period of thirty (30) days (If office of the concerned Railway Authority remains off on 30th day, then upto next working day after 30th day) of receipt of such communication letter to switch over to the provisions of the arbitration and conciliation (Amendment) Act, 2015. Such communication will be termed as valid communication for shifting of Arbitration cases, only if it is received in the enclosed standard format in the office of letter issuing authority within the specified period. Any other communication for whatsoever reasons will be termed as invalid and be not taken into cognizance. Hence, it is requested to communicate your consent/response to this letter at the earliest for further processing please." 3. Thereupon, Annexure A-11 reply is issued by the applicant stating that the applicant is not prepared to waive off the applicability of S.12(5) of Arbitration and Conciliation (Amendment) Act, 2015, and not to continue the arbitration case under the existing Arbitral Tribunal. Thereupon, Annexure A-11 reply is issued by the applicant stating that the applicant is not prepared to waive off the applicability of S.12(5) of Arbitration and Conciliation (Amendment) Act, 2015, and not to continue the arbitration case under the existing Arbitral Tribunal. That apart, it is stated that, in view of the applicability of S.12(5) of the Amendment Act, there is no necessity to abide by the proceedings or decisions of the ongoing Arbitration procedure in entirety till communication to switch over existing arbitration ease is communicated by the Tribunal; It is also requested to constitute a fresh Arbitral Tribunal and the arbitrators may not be the persons who are in any way connected to the Railway Administration. It is further stated that the applicant undertakes to abide by the Railway's decision in regard to switch over the proceedings of Arbitration case to the provisions of the Arbitration (Amendment) Act, 2015. According to the applicant, in spite of Annexure-A11, the Tribunal is being proceeded with the reference made as per Annexure-A9, which is against the provisions of the Amendment Act, 2015. 4. A detailed counter affidavit is filed by the opposite parties, refuting the claims and demands raised by the applicant. Among other contentions, it is stated that, actually, there was no necessity to issue the said letter, since in the case on hand, the Arbitral Tribunal was appointed prior to the amended section came into force, and therefore, S.12(5) has no application. Other contentions are also raised with respect to the factual circumstances. Therefore, the opposite parties seek dismissal of the arbitration request. 5. A reply affidavit is filed by the applicant reiterating the stand adopted in the arbitration request arid refuting the contentions raised in the counter affidavit. 6. I have heard learned counsel for the applicant and the learned Standing Counsel appearing for the opposite parties. Perused the documents on record and the pleadings put forth by the respective parties. 7. The sole question to be considered is, whether the provisions of the Amendment Act, 2015 will apply to the applicant as well as the opposite parties. In order to clarify the said issue, a reference to S.26 of the Amendment Act, 2015 would be worthwhile, which read thus: "26. 7. The sole question to be considered is, whether the provisions of the Amendment Act, 2015 will apply to the applicant as well as the opposite parties. In order to clarify the said issue, a reference to S.26 of the Amendment Act, 2015 would be worthwhile, which read thus: "26. Act not to apply to pending arbitral proceedings.- Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of S.21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act," 8. Therefore, on a reading of S.26, it is evident that, a proceeding which has commenced in accordance with the provisions of S.21 of the Act, 1996, then the provisions of the Amendment Act will not apply. Section 21 of the parent Act stipulates that unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. Here, in this case, Annexure-A7 is the request for appointment of arbitrator, which is dated 02.02.2015. The Amendment Act, 2015 is dated 31.12.2015 having operation from 23.10.2015. Therefore, it is evident that, by virtue of S.26 of the Amendment Act, 2015, the provisions of the Amendment Act, 2015 will not apply to the proceedings already commenced by and between the applicant and the opposite parties. 9. However, a contention is advanced by learned counsel for the applicant that since the opposite parties have issued Annexure-A10 seeking to consent the continuation of the Arbitral Tribunal as provided u/S.12(5) and the applicant has issued its consent to abide by the provisions of the Amendment Act, 2015, opposite parties are not at liberty to turn around and contend that they are not liable as committed under Annexure-A10. Section 12(5) of Act, 1996, as amended with effect from 23.10.2015 read thus: "12. Section 12(5) of Act, 1996, as amended with effect from 23.10.2015 read thus: "12. Grounds for challenge.- (1) x x x x x x (2) x x x x x x (3) x x x x x x (4) x x x x x x (5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of: the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing." Sub-section (5) of S.12 is self-explanatory. However, in view of S.26 and issuance of notice on 02.02.2015, the provisions of the Amendment Act, 2015 are not applicable to the proceedings already commenced by and between the applicant and the opposite parties. 10. Learned counsel for the applicant has invited my attention to the judgment in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd, (2017) 4 SCC 665 and specifically to paragraph 18, which read thus: “18. Keeping in mind the afore-quoted recommendation of the Law Commission, with which spirit, S.12 has been amended by the Amendment Act, 2015, it is manifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, Sub-s.(5) of S.12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject-matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. In such an eventuality, i.e. when the arbitration clause finds foul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator(s) as may be permissible. That would be the effect of non obstante clause contained in Sub-s.(5) of S.12 and the other party cannot insist on appointment of the arbitrator in terms of the arbitration agreement." 11. On a reading of the said judgment, it is clear that the consideration thereunder is in respect of an arbitration agreement prior to the commencement of the Amendment Art- 2015, and there was no commencement of the proceedings u/S.21 of the parent Act. On a reading of the said judgment, it is clear that the consideration thereunder is in respect of an arbitration agreement prior to the commencement of the Amendment Art- 2015, and there was no commencement of the proceedings u/S.21 of the parent Act. There is no doubt about the said legal position at all. But in the case on hand, the application of Act, 2015 is dependent on S.26 of the Amendment Act, 2015, which I have quoted earlier, wherein it is specifically stated that, in a proceeding already commenced, as provided u/S.21 of Act, 1996, the provisions of the Amendment Act, 2015 will not apply. 12. From the discussion made above, it is dear that the proceeding commenced on 02.02.2015. Therefore, there is no doubt in my mind to hold that the amended provisions will not apply in the facts and circumstances in the case on hand. 13. It is also contended by learned counsel for the applicant that, in view of Annexure-A10 issued by the opposite parties, the opposite parties have waived the proceedings initiated under Act, 1996, and is therefore/liable to be proceeded, taking into account the imperative provisions contained under the Amendment Act, 2015. But the issue with respect to the waiver is taken care of u/S.4 of Act, 1996, which read thus: "4. Waiver of right to object.- A party who knows that- (a) any provision of this Part from which the parties may derogate, or (b) any requirement under the arbitration agreement, has not been complied with any yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object." It is evident from the said provision that, waiver is statutorily recognized in respect of the subject matters enumerated therein under Chapter I of Arbitration and Conciliation Act, 1996, and therefore, the contention with respect to the waiver addressed by learned counsel for the applicant cannot be legally sustained. 14. Learned Standing Counsel appearing for the opposite parties, apart from addressing the arguments in accordance with the counter affidavit filed/invited my attention to the judgment of the apex Court in 'Aravali Power Company Pvt. Ltd. v. Era Infra Engineering Ltd., Civil Appeal Nos. 14. Learned Standing Counsel appearing for the opposite parties, apart from addressing the arguments in accordance with the counter affidavit filed/invited my attention to the judgment of the apex Court in 'Aravali Power Company Pvt. Ltd. v. Era Infra Engineering Ltd., Civil Appeal Nos. 12627-12628 of 2017 and other connected cases dated 12.09.2017 wherein at paragraph 6, it is stated that on 01.01.2016, the Amendment Act, 2015 was gazetted and according to S.1(2), the Amendment Act was deemed to have come into force on 23.10.2015. Paragraph 14 of the said judgment is relevant to the context, which read thus; "14. At the outset, it must be stated that the invocation of arbitration in the present case was on 29.07.2015, the Arbitrator was appointed on 19.08.2015 and the parties appeared before the Arbitrator on 07.10.2015, well before 23.10.2015 i.e. the date on which the Amendment Act was deemed to have come into force. The statutory provisions that would therefore govern the present controversy are those that were in force before the Amendment Act came into effect. We must mention here that both the parties have addressed their submissions on this premise." 15. The recitals contained under paragraphs 21 and 22 are also relevant, which is a composite answer for the issue cropped up for consideration in this arbitration request, which read thus: "21. Except the decision of this Court in Voestalpine Schienen GMBH (supra) referred to above, all other decisions arose out of matters where invocation of arbitration was before the Amendment Act came into force. Voestalpine Schienen GMBH (supra) was a case where the invocation was on 14.06.2016 i.e. after the Amendment Act and the observations in Para 18 clearly show that since "the arbitration Clause finds foul with the amended provisions", the Court was empowered to appoint such arbitrator(s) as may be permissible. The ineligibility of the arbitrator was found in the context of amended S.12 read with Seventh Schedule (which was brought in by Amendment Act) in a matter where invocation for arbitration was after the Amendment Act had come into force. It is thus clear that in pre-amendment cases, the law laid down in Northern Railway Administration (supra), as followed in all the aforesaid cases, must be applied, in that the terms of the agreement ought to be adhered to and/or given effect to as closely as possible. It is thus clear that in pre-amendment cases, the law laid down in Northern Railway Administration (supra), as followed in all the aforesaid cases, must be applied, in that the terms of the agreement ought to be adhered to and/or given effect to as closely as possible. Further, the jurisdiction of the Court u/S.11 of 1996 Act would arise only if the conditions specified in Clauses (a), (b) and (c) are satisfied. The cases referred to above show that once the conditions for exercise of jurisdiction u/S.11(6) were satisfied, in the exercise of consequential power u/S.11(8), the Court had on certain occasions gone beyond the scope of the concerned arbitration clauses and appointed independent arbitrators. What is clear is, for exercise of such power u/S.11(8), the case must first be made out for exercise of jurisdiction u/S.11(6). 22. The principles which emerge from the decisions referred to above are: A. In cases governed by 1996 Act as it stood before the Amendment Act came into force: (i) The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. There can however be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate to the officer whose decision is the subject-matter of the dispute. (ii) Unless the cause of action for invoking jurisdiction under Clauses (a), (b) or (c) of Sub-s.(6) of S.11 of 1996 Act arises, there is no question of the Chief Justice or his designate exercising power under Sub-s.(6) of S.11. (iii) The Chief Justice or his designate while exercising power under Sub-s.(6) of S.11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause. (iv) While exercising such power under Sub-s.(6) of S.11, if circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else. B. In cases governed by 1996 Act after the Amendment Act has come into force: If the arbitration Clause finds foul with the amended provisions, the appointment of the Arbitrator even if apparently in conformity with the arbitration Clause in the agreement, would be illegal and thus the Court would be within its powers to appoint such arbitrator(s) as may be permissible." 16. Reckoning the facts and circumstances and the legal position discussed above, I am of the considered opinion that applicant is not entitled to get an arbitrator appointed by this Court u/S.11(6) of the Act, 1996. However, learned counsel for the applicant, at that point of time, submitted that the request made in Annexure-A11 letter dated 07.04.2017 may be taken into consideration by the opposite parties. Therefore, the request is dismissed, however, leaving open the liberty of the applicant to seek any relief as per Annexure-A11.